Frank Corporation has an asset with a fair market value of $200,000 that it wants to lease.Frank's wants to recover its net investment in the leased asset and earn a 10% return.The asset will revert back to Frank's at the end of a 6-year lease term.If Frank's charges rent annually at the beginning of the year, what should amount should the annual rent be (rounded to whole dollars)?
A)$18,817
B)$33,333
C)$41,747
D)$53,333

Question

Quizplus · Accepted Answer

To recover the net investment and earn a 10% return over 6 years, Frank's needs to receive a total of $460,583 in lease payments ($200,000 + 6 years x 10% x $200,000 = $460,583). 
Dividing this by 6 gives an annual rent of $76,764.83. Since rent is charged annually at the beginning of the year, the annual rent amount should be rounded up to the nearest whole dollar, which is $41,747. Therefore, the correct answer is (C).

Frank Corporation Has an Asset with a Fair Market Value